Current Account »

• Out of the mouth of babes…

  April 4, 2012 @ 1:59 pm | by John Collins

  Sometimes it just takes a child to see the blindingly obvious. Jurre Herman, an 11-year-old from the Netherlands, has won a special mention in the Wolfson economics prize, for his simple plan for how Greece might leave the euro. Pitched against the great and the good of professional and academic economists, he drew a simple but surprisingly insightful diagram of how Greece could return to the drachma and pay off a lot of its euro debts in the process (image after the break).

  (more…)

• Are we set for a “grand bargain” or a “grand fudge”?

  October 25, 2011 @ 1:02 pm | by John Collins

  Crunch time for the euro, European economies and even the global economy tomorrow when the continents leaders resume their talks in Brussels at 6pm on Wednesday. While there’s a real sense of deja vu about this big set piece, it is the thirteenth crisis summit in two years, this is increasingly looking like the last chance saloon if Europe doesn’t want to slip into a lost decade of stagflation.

  So what are the options on the table and what are the complications of each? (more…)

• Michael Lewis profiles our new overlords

  August 16, 2011 @ 3:03 pm | by John Collins

  Germany now owns Europe and if the rest of us want to enjoy the benefits of European political and financial union then we better start acting more German. That’s the broad c0nclusion of Michael Lewis’s latest article on the European economy which is published in this month’s Vanity Fair. As with his previous articles on Ireland, Iceland and Greece it’s well worth a read.

  Lewis explores the German national character which he reckons is overly scatalogical and concludes that any society that is obsessed with cleanliness on the outside and dirt on the inside was bound to be a sucker for triple A rated bonds stuffed full of sub-prime loans.

  There’s an interesting line about Ireland, and one that should concern us if European leaders continue to play catch up with this crisis:

  The German government gives money to the European Union rescue fund so that it can give money to the Irish government so that the Irish government can give money to Irish banks so the Irish banks can repay their loans to the German banks. “They are playing billiards,” says [German economist Henrik] Enderlein. “The easier way to do it would be to give German money to the German banks and let the Irish banks fail.”

  Some commentators, including my colleague Dominic Coyle last Monday, have pointed out that the nub of the issue is whether the Germans want to pick up the tab for the rest of the euro zone. A senior official at the Bundesbank suggested to Lewis that Germany may be in a better position to do that than many people think:

  “We have 3,400 tons of gold,” he said. “We are the only country that has not sold its original allotment from the [late 1940s]. So we are covered to some extent.”

  Beautifully written and researched as usual Lewis’s article provides plenty of food for thought. Hopefully it will be read in the Élysée Palace and Bundestag.

• Credit crunch II: the sovereign edition

  August 8, 2011 @ 4:10 pm | by John Collins

  So three years on from the global banking implosion we have another rapidly moving crisis. This time instead of it being banks that are having “liquidity problems” and which are “too big to fail” it’s nation states. Just as the banks problems were caused by the availability of cheap credit which allowed them make crazy loans that weren’t backed by their own reserves, it has now become blatently obvious that governments were also taking advantage of low bond yields to build up massive piles of debt.

  To use an Irish banking analogy, Greece is Anglo/Nationwide i.e. a basket case, Portugal, Spain and Italy are looking like AIB, caught out when cheap cash dried up and investors began to question their ability to repay. Let’s just hope Germany and France don’t turn out to be Bank of Ireland.

  The one positive of this current crisis is that Ireland is no longer in the eye of the storm. At the time of writing market sentiment towards Ireland is actually improving. The yield on our ten year bonds is now “just” 9.96 per cent having been north of 14 per cent as recently as the middle of last month. That says bond investors think we are a less risky bet and Ireland might actually find its way out of this morass. And the positive corporate news today from Data Electronics Group, Jacob Fruitfield and Boston Scientific, suggest there is an appetite for investment in Ireland.

  It’s hard to see where present events, which now constitute a global crisis and no longer just a European one, will lead. But the similarities with the original credit crunch suggest things could really come to a head in September. If history tells us one thing, it’s that financial markers have a habit of imploding during the Autumn. From the Wall Street Crash of 1929 to the Lehman implosion in 2008 we are heading in to the most volatile time of the year. It’s going to be an interesting couple of weeks.